U.S. economy ekes out 1.3% Q2 growth

The latest numbers on U.S. growth disappoint, with the American economy eking out an annualized increase in the second quarter of just 1.3 per cent.

This was a 'horrible report,' economist says

High gasoline prices and small increases in income are cutting into U.S. consumers' purchases. (Seth Perlman/Associated Press)

The latest numbers on U.S. growth disappointed, with the American economy eking out an annualized increase in the second quarter of just 1.3 per cent.

"Without hyperbole, this was a horrible report," TD Bank senior economist James Marple said Friday in a commentary.

"For the last year, the U.S. economy has not grown fast enough to bring down an unemployment rate that has remained elevated for the longest period outside of the Depression," he said.

The Commerce Department's report surprised economists, who on average had been expecting healthier GDP growth of 1.8 per cent.

The U.S. government also dramatically revised the first quarter growth figure — lowering it from the previous 1.9 per cent estimate to a gain of just 0.4 per cent.

"With 25 million unemployed or underemployed, a deceleration in growth is moving in exactly the wrong direction. Given the depth of the decline, it is nothing short of stagnation," Marple said.

He added that the looming prospect of a default as a result of the deficit-cutting standoff in the U.S. Congress raised the threat of a drastic cut in government spending.

"While there are signs that economic growth should strengthen in the second half of the year, the lingering political crisis in Washington presents a huge downside risk to this outlook."

"In addition to the loss of risk appetite in financial markets, the uncertainty acts as a drag on badly needed investment and hiring. A speedy resolution to this crisis is a prerequisite to desperately needed improvement in economic growth," Marple said.

The U.S. numbers came the same day Statistics Canada reported that real gross domestic product fell by 0.3 per cent in May, much worse than the 0.2 per cent gain that had been expected.

"These numbers are extremely bad," Nigel Gault, an economist at IHS Global Insight, told The Associated Press. "The momentum in the economy is clearly very weak."

Even positive numbers were disappointing. Business spending on equipment and software was up 5.7 per cent in the second quarter, but that's a drop from the 8.7 per cent gain in the first quarter.

The economic growth, measured as an increase in gross domestic product — the output of goods and services in the United States — reflected gains in exports, non-residential fixed investment, private inventory investment, and federal government spending. But the increase was reduced by cuts in state and local government spending, and imports.

Consumer spending stalls

Real personal consumption stalled at  just 0.1 per cent in the second quarter, compared with an increase of 2.1 per cent in the first quarter, the department said.

High gasoline prices and tiny gains in income have forced consumers to limit spending.

The department also revised past growth estimates, which show the recession was deeper than previously estimate. The economy shrank 5.1 per cent between December 2007 through June 2009, compared with the previous 4.1 per cent estimate.   

"The depth of the recession is now clearly so much deeper," Gault said.

Friday's advance estimate of second quarter growth is based on incomplete data and is often revised later.

With files from The Associated Press